WASHINGTON, Aug 22 (Reuters) - Massive spending cuts and taxhikes due next year will cause even worse economic damage thanpreviously thought if Washington fails to come up with asolution, Congress' budget office said on Wednesday.

Without Congressional action to avoid a "fiscal cliff,"Americans should expect a "significant recession" and the lossof some 2 million jobs, Congressional Budget Office directorDoug Elmendorf said in his gloomiest assessment yet.

He said the economy is already being "held back" by the mereanticipation of the cliff and the uncertainty surrounding it."The sooner that uncertainty is eliminated, the better," saidElmendorf.

The report could intensify the pressure on Congress and theWhite House to resolve their differences. But the likelihood ofa resolution any time soon, particularly before the Novemberelection, is seen as slim. Chances could improve after theelection for action during the lame-duck session of Congress,but that's unpredictable as well.

Neither Democrats nor Republicans have shown a willingnessto back away from fixed positions on either budget cuts orextension of tax cuts originally enacted during theadministration of George W. Bush.

The "cliff" refers to the impact of expiring tax cuts andautomatic spending reductions set for 2013 as a result ofsuccessive failures by Congress to agree on some orderlyalternative method of addressing the deficit.

The CBO said failure to avoid the cliff would deliver ashock to the economy that would cause U.S. gross domesticproduct to shrink 0.5 percent in 2013. Previously, the CBO hadforecast full-year GDP growth of 0.5 percent.

The main reason for the gloomier outlook now versus the lastestimate in May is weakness in the global economy, the growinguncertainty mentioned by Elmendorf about what Congress will do,and a determination that the cliff is somewhat steeper than theMay estimate suggested.

That estimate did not include expiring payroll tax cuts andthe end of extended unemployment benefits, the CBO said.Factoring in the end of those streams of cash to Americans wouldincrease the shock.

Were Congress to resolve everything -- the most optimisticscenario -- the CBO said the economy would continue to grow,albeit weakly.

Economic growth under this optimistic scenario would bemodest in 2013 at 1.7 percent, with an 8.0 percent unemploymentrate compared with 9.1 percent should the U.S. go over thefiscal cliff.

The CBO anticipates that the first half of next year will beparticularly difficult, with U.S. gross domestic productshrinking by 2.9 percent, followed by a slight bounce-back withsecond half growth of 1.9 percent. But these are far worse thanits previous projections of a 1.3 percent first-half contractionfollowed by 2.3 percent second-half growth.

As for the current fiscal year, which ends Sept. 30, theagency shaved its U.S. budget deficit forecast to $1.128trillion from $1.171 trillion, mostly due to lower-than-expectedspending for the Medicare and Medicaid healthcare programs.